The Bank of England is taking steps to regulate certain stablecoins that might be a threat to the financial system. In a paper shared by the Financial Conduct Authority (FCA), the Bank has announced its plan to oversee large-scale stablecoins and the companies that issue them. The responsibility of regulating stablecoin providers within the cryptocurrency field will be with the FCA.
The UK government also plans to introduce laws governing stablecoins backed by traditional currencies, like the US dollar or the euro, early next year.
Understanding FCA’s Role
The Financial Conduct Authority (FCA) will supervise all cryptocurrency providers, which includes those issuing stablecoins. At the same time, new rules that oversee stablecoins connected to traditional currencies will be presented in the coming year.
Read More: UK Crypto Regulations: What Firms and Investors Need to Know
Stablecoins have become more and more popular recently for their ability to move digital assets swiftly and securely without the wild price swings seen with other cryptocurrencies like Bitcoin. However, concerns have been raised about what might happen if stablecoins are used widely for payments or as a way to store value, which could potentially impact financial stability.
But It’s a Risky Business!
In their discussion paper, the Bank of England said that stablecoins could pose risks to financial stability if they “become popular with consumers” or if they are used for “large-scale payments or remittances.” The bank added that it plans to introduce specific regulations to address these risks, including requirements for stablecoin issuers to provide clarity about the assets backing their tokens.
Also Read: Bank of England Deputy Governor Warns of Crypto Risks!
Additionally, the Bank of England is considering other measures, such as setting a minimum amount of capital that stablecoin issuers must have, testing how stablecoin systems handle stress, and placing limits on the types of assets that can be used to support stablecoin tokens.
In summary, the discussion paper from the Bank of England highlights how regulators are recognizing the potential of stablecoins to change the financial world.
